Tuesday, February 24, 2009

President Obama addressed the country before a joint session of Congress tonight. It was not technically a State of the Union address, which was just as well, as it relieved Obama from the unpleasant chore of finding an suitably precipitous adjective too replace that used in the shopworn bromide, "The state of our Union is strong." Instead he said that

[The] day of reckoning has arrived, and the time to take charge of our future is here.

It was, even by his standards, an excellent speech. He deftly balanced alarm at where we are as a nation, conveyed the urgency of taking bold action, drew on relevant history and quietly reassured that American determination gives us confidence of prevailing.

The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank. We have known for decades that our survival depends on finding new sources of energy. Yet we import more oil today than ever before.

Yes, but will we have the will to finally act? Can Obama bring the country and the Congress with him on this?

It begins with energy.

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we've fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders - and I know you don't either. It is time for America to lead again. Thanks to our recovery plan, we will double this nation's supply of renewable energy in the next three years. We have also made the largest investment in basic research funding in American history - an investment that will spur not only newdiscoveries in energy, but breakthroughs in medicine, science, and technology. We will soon lay down thousands of miles of power lines that can carry new energy to cities and towns across this country. And we will put Americans to work making our homes and buildings more efficient so that we can save billions of dollars on our energy bills.

But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. And to support that innovation, we will invest fifteen billion dollars a year to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America.

As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not, and will not, protect them from their own bad practices. But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it. Scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it.

None of this will come without cost, nor will it be easy. But this is America. We don't do what's easy. We do what is necessary to move this country forward.

I don't buy into the fictionofcleancoal, but otherwise this is a no-nonsense call to bold, direct, specific action. It's true leadership into the face of difficulty and the teeth of adversity. It's a refreshing and much needed change, and a stark contrast to everything the GOP has said and continues to say.

Louisiana Governor Bobby Jindal gave the Republican response. He attempted to use his personal story, a folksy delivery and a selective recounting of how he was doing things better in his state to reiterate core Republican concepts of less spending, more tax cuts, and limited government. Not only is the message completely out of step with the times and the mood of the country, but his presentation came across as mawkish, stilted, even canned, as if he had recorded it earlier in the day. He didn't really respond to what Obama said at all. On energy all he had to say was:

To strengthen our economy, we need urgent action to keep energy prices down. All of us remember what it felt like to pay $4 at the pump. And unless we act now, those prices will return.

To stop that from happening, we need to increase conservation, increase energy efficiency, increase the use of alternative and renewable fuels, increase our use of nuclear power, and increase drilling for oil and gas here at home.

We believe that Americans can do anything. And if we unleash the innovative spirit of our citizens, we can achieve energy independence.

The idea that we can somehow prevent gas prices from going back up is astonishingly naive. He is either woefully ignorant of the price drivers or is shamelessly pandering to his political base. Prices are low now, temporarily, because of the enormous demand destruction attending our cratering financial situation. They will stay low only in a global deflationary environment.

Missing entirely from Jindal's retreads is any mention of renewable energy. No wind. No solar. No hydrokinetic generation of any kind. Only the vague "unleash the innovative spirit", a hollow piece of flattery that he probably imagines would occur through the magic of more tax cuts, which is notwhatwe need.

The Republican idea that Jindal is a rising star and potential 2012 nominee shows both the party's intellectual bankruptcy and how frighteningly clueless they are about the deepest existential crisis the country has experienced in a generation--maybe ever--a crisis created by the same discredited policies they blithely suggest we continue.

Sunday, February 22, 2009

The appointment of former US Senator Ken Salazar (D-CO) as Interior Secretary provoked some ambivalence in both environmental and industry circles. A strong-willed and outspoken westerner, Salazar is seen as industry-friendly while still being environmentally concerned, although just not enough so to completely please either side. In office, his early actions appear consistent with his reputation. For his part, the Secretary has neither fully charmed nor alarmed. Is he a centrist such as President Obama believes will further his so-called post-partisan approach to governing?

Salazar, who halted leases for oil and gas development on some federal lands in Utah earlier this month, said that while the administration will focus on energy efficiency and renewable sources, there is still room for conventional fuels. Oil shale, he added, still has "great potential," and he may revise rules on harvesting that energy source "in the near term." "We intend to move forward with a comprehensive energy plan," Salazar told a bipartisan group of Western governors huddled in Washington for a national summit. "You should take away from this conference in Washington that the Obama administration is not against developing any of those resources. … Let's put everything on the table."

Last November Salazar's predecessor as Secretary, Dirk Kempthorne, rushed through regulations under the Bureau of Land Management (BLM) to encourage oil shale development in the so-called Green River Formation, a two million acre tract of federal land straddling Colorado, Utah and Wyoming that optimists in the Fossil Industry think may contain perhaps 800 billion barrels of "recoverable" oil. As I noted at the time, Salazar was strongly opposed, concerned about scarring the land of his home state and calling the projected royalties to the government "a pittance."

These regulations are premature and flawed. The Bush Administration has fallen into the trap of allowing political timelines to trump sound policy. Over and over again the Administration has admitted that it has no idea how much of Colorado’s water supply would be required to develop oil shale on a commercial scale, no idea where the power would come from, and no idea whether the technology is even viable on a commercial scale.

Now he blandly calls the Bush attempt to ramrod rules merely "misplaced" and seeks simply to assess the "legal options" the Interior Department has available to it and to make his own decisions over the course of the next 6 months. Shale shills are pleased to agree: "It's foolish to dismiss any options at this point," says Utah Gov. Jon Huntsman Jr.

At a news conference in Washington, Salazar said he will move to slow the "headlong rush" to "drill, drill, drill." Salazar said Bush's midnight five year plan, which covers the years from 2013 through 2017, accelerated by two years the regular process for creating a new plan for the outer continental shelf. It "was a process rigged to force hurried decisions based on bad information," he said. "It was a process tilted toward the usual energy players while renewable energy companies and the interests of American consumers and taxpayers were overlooked." "It opened up the possibility for oil and gas leasing along the entire eastern seaboard, portions of offshore California, and the far eastern Gulf of Mexico - with almost no consideration of state, industry, and community input and, in the case of the Atlantic coast, with very limited information about the nature of offshore resources," the secretary said. Despite the sweeping proposal to open up as many as 300 million acres to new offshore oil and gas leasing, the Bush administration's notice called for the completion of scoping meetings and public hearings on the new plan for the outer continental shelf by March 23 - less than 45 days from today.

As with the oil shale, Salazar also wants a 180-day fact-finding period to reconsider the Bush decisions and intends to re-open the decision to additional comments.

The Bush administration was so intent on opening new areas for oil and gas offshore that it torpedoed offshore renewable energy efforts... This rulemaking will allow us to move from the oil and gas only approach of the previous administration to the comprehensive energy plan that we need.

Notwithstanding the intention to continue the current leasing plan, and to not reinstate any offshore drilling ban, American Petroleum Institute (API) President Jack Gerard whined:

The accelerated Outer Continental Shelf five-year plan process, which the secretary placed on hold today, was designed to address the critical energy concerns facing Americans. The draft plan already received a record 120,000 comments from states, environmental groups, industry, labor groups and members of the public - with 87,000 of those comments supporting expanded and expeditious development... Secretary Salazar's announcement means that development of our offshore resources could be stalled indefinitely.

It's not easy to please Gerard or the API. After 8 years of being given everything they wanted, their response to being told "no" is akin to a toddler denied a 9th consecutive treat. The tantrum is about not getting it right now, rather than tomorrow, as a more responsible parent might do (if he behaves!) Gerard's fear-mongering about the urgent need for energy ignore both the reduced demand at present and the inability of offshore oil to ever amount to more than the proverbial drop in the bucket. It's drill now, ask questions later.

But environmentalists are pleased with the Obama administration's new approach to offshore energy resources. Wesley Warren, director of programs for the Natural Resources Defense Council, said, "By committing to a thorough review, Salazar is demonstrating bold leadership that will offer America a new energy future that provides clean domestic energy and cuts our dependence on foreign oil."

Centrism?

The simple reading that API and others make on these developments is that the Obama Administration is hostile to oil and gas and is using review in the manner that the Bush Administration did: study and delay, doing nothing for as long as possible while greenlighting the activities of preferred industries and friendly businesses.

It's possible that the same plan is underway here, only with the sides reversed, but the approach is already too different for this interpretation. Salazar says his Department of the Interior is acting to fulfill President Barack Obama's commitment to "a government that is open and inclusive and that makes decisions based on sound science and the public interest." Salazar shows a strong preference for deliberate decision-making based on collecting all available information and using the facts to guide an even-handed application of law and policy, a significant departure from the practices of the past 8 years.

In not banning offshore oil outright, and in holding out the prospect of oil shale development, the Obama Administration goes against its supposed joined-at-the-hip environmental allies and offers the Fossil Industry a fair hearing on the merits. They may not have merit (I believe) but there will be an honest appraisal based on science rather than ideological cant. It's refreshing.

Indeed, after more review, there will likely be further offshore drilling. Said Obama:

Offshore drilling as part of a comprehensive energy strategy may make sense. In isolation, it's short-sighted. I hold out for a more comprehensive strategy before I sign off on whole-hog drilling offshore.

Colorado Governor Bill Ritter, long-aligned with Salazar on oil shale says its development should be considered but

...we should just be prudent in how we develop it. It's heartening to me that [Salazar is] going to be thoughtful and that he'll only allow oil shale to be developed when the technology is such that we can also protect our air and our water and our wildlife.

Whether all this amounts to merely a symbolic break with the secretive and science-hostile Bush Administration or a genuine and good-faith open-mindedness remains to be seen. We'll know for sure in much less than the six month period of review.

Friday, February 20, 2009

In an economic environment dominated by fear incentives are needed to spur action. Creating the right incentives is critical to spurring the right actions.

Most everyone is happy that oil and gas are relatively cheap right now. Following the gyrations of oil prices and the oil market is exhausting; trying to predict them with any accuracy is nearly impossible, even for the experts and industry insiders. Now that the price appears to have stabilized at a modest level, the tendency is to exhale and relax and return to "normal." However, if you're an oil company, you never relax from the siege mentality.

Oh to be a benighted oil company, struggling against restrictive government policies and burdensome taxation. If only lawmakers would come to their senses! Why, Big Oil is heroically undertaking extraordinary financial risks to deliver fuel to thirsty consumers, and doing so in the face of pointless restrictions, crippling regulation and unfair taxation! If something isn't done, they darkly warn, exploration will atrophy, production will shrink, and the oil supply will become scarce and costly. There's really lots of oil in the US if only we could be allowed to drill it. It's an old story. Antipathy to Big Oil goes back at least to the trust-busting era, through the OPEC Oil Embargo and to the present day.

The industry is not the source of all the country’s energy problems nor is it solely to blame for the rising cost of energy.... But the companies have only themselves to thank for the low esteem in which the public presently holds them.

That was written in 1976, as Congress debated breaking up the vertical integration of the oil companies. That never happened, but Big Oil has since done little to build the public's trust, nor have they helped their image by clumsy greenwashing.

The American Petroleum Institute (API), the Grand Oil Party and others have been in high dudgeon over what they perceive as an insufficient emphasis on domestic oil exploration. Their voluble irritation has increased since the November election, and has been little mollified by signs that the Obama Administration will not return to a complete offshore drilling ban. Industry groups such as the API have long fought to preserve and expand their special-interest tax treatment, even arguing against the payment of loophole-avoided taxes because it would reduce the incentive for them "to search for new energy supplies."

To hear the flacks tell it, Big Oil is only barely making it with their marginal incentives (e.g. depletion allowances and expensing intangible drilling costs); any restrictions or reductions in their favorable tax treatment could have dramatically negative consequences. API head Jack Gerard frets that such things as a windfall profits tax will leave the industry no incentive to invest in new supply:

It creates a double disincentive. It takes [away] the potential for us to invest in the future, and it also tells us that now we have to look overseas because we have to go look at more competitive opportunities than we have here in the U.S.

That's right, give us what we want or we'll leave. However, the API may have failed to brief their members on these extraordinary risks, because Big Oil is keeping the pedal down on investment in new production. Exxon, the most profitable company in history is unequivocal:

“We intend to continue to invest at these record levels at least over the next five years,” Ken Cohen, Irving-based Exxon Mobil's vice president of public affairs, told reporters recently. The company's $26.1 billion in capital spending last year was 25 percent more than in 2007.

Chevron says nothing different:

Dave O'Reilly, Chevron's chairman and chief executive, told analysts that the San Ramon, Calif.-based company also will maintain spending levels of nearly $23 billion, focused on completing projects that have long been in the works.

Further:

Exxon Mobil and Chevron both said that while they'll keep spending on projects they had in their queues, they intend to chase every cost savings they can, including pushing oil field services providers to bring their prices in line with the fall in commodities. “Through these investments we continued to demonstrate our long-term focus throughout the business cycle,” Exxon Mobil Chairman and Chief Executive Rex Tillerson said in a statement.

And why not? Exxon has continuedtosetrecordsforitsquarterly earnings and the last quarter of 2008 earned $7.8B, a huge sum, but actually quite a drop from its usually lofty results. They've got the money to invest: Exxon has some $31.4B and Chevron some $9.4B in cash. It's not as if they need more taxpayer handouts to produce oil and gas; they seem to be doing very well already and there is no sign that they are poised to throw some kind of hissy fit and stop over the level of "incentives:"

Analysts largely view Exxon Mobil and Chevron as the strongest among the world's largest publicly traded oil companies, each with healthy cash on hand, low debt, a steady stream of project startups and the ability to acquire assets, including distressed companies, amid the recession.

Another area of continued investment and historically high returns their fat coffers allow is lobbying:

API began spending tens of millions of dollar a year in advertising not long after Hurricane Katrina struck in 2005 to deflect calls for a windfall-profits tax on oil companies and proposals to end billions of dollars in tax breaks for oil producers. Mr. Obama advocated a windfall-profits tax, saying he would like to subsidize renewable-energy sources with the extra revenue collected.

Mr. Gerard said he planned to continue spending significant amounts on issue advertising, but declined not give a specific number. "I think we'll play offense where we can. We'll play defense where we have to," he said.

With oil prices low right now there is worry that Big Oil has insufficient incentives to drill and produce; but apparently this is a misplaced concern since their actual investment continues apace. The reasons are not hard to discern.

Oil futures are trading much higher than today's spot price around $35 per barrel. Much higher. There are several reasons, including steadily reduced production from existing fields, oil exporters hoarding supply as they await higher prices, and a growing realization that Peak Oil is upon us:

Goldman Sachs oil analyst Jeffrey Currie issued a report yesterday predicting a, “swift and violent rise” in oil prices in the second half of 2009. Currie told a conference in London that, “Thirty dollar oil reflects the same imbalances that got us to $147 oil. The problems haven’t gone away. We still believe the day of reckoning is to come.” What problems? There are still major infrastructure bottlenecks in the global oil network. Currie says that despite the big fall off in demand, “This is not 1982-1983 all over again. The supply picture’s radically different…the demand picture’s radically different. The key difference is that today there are no large-scale next generation projects that are going to save the world. Commodity demand is exponentially higher than it was.”

There is also a lot of oil arbitrage,

...where supply is stockpiled offshore, and thus withheld from refiners, allowing existing gasoline inventories to be worked down. Then in six to twelve months time, when crude prices have moved higher, you simply park your ship at the terminal and cash in on the difference between what you paid six months ago (today) and the new market price. It is normal for the oil futures to be in cotango, where spot prices are lower than futures prices. What’s less normal is the amount of oil being stockpiled offshore. “Frontline Ltd., the world’s biggest owner of supertankers, said Jan. 14 about 80 million barrels of crude oil are being stored in tankers, the most in 20 years.”

API's Gerard says flatly that demand for oil will remain robust notwithstanding any push to reduce consumption. International Energy Agency (IEA) Executive Director Nobuo Tanaka foresees a "crunch" in oil supply with recovering demand as early as 2010 unless investments are made now. The IEA suggests that while demand destruction may already have caused oil demand to have peaked, much more oil would be needed even in a scenario of no growth in oil demand--as much as 45 million barrels per day of new oil production by 2030. The cotango says clearly that oil is going to get much more expensive again, and the amount of oil sitting in storage represents the speculators' confidence that buying now and paying for storage will yield nice profits against the locked-in future price. In this environment is it any wonder that Big Oil continues to both produce and aggressively invest in new capacity?

Contrast this with the grim mood in the orders-of-magnitude smaller renewable energy industry. Investment capital has dried up and companies have nothing close to the kind of cash on hand or profitable cash flows of Big Oil. At last week's Offshore Wind Financing Conference in San Diego the only deals getting done were for projects in the final stages with permits in hand, supply chain commitments, and signed power purchase agreements. Anything in any earlier stage cannot get funded in this investment climate.

Unfortunately we are seeing a deceleration occurring in the switch to renewables... While the economic slowdown itself serves to reduce CO2 emissions, if we don't invest now we will have serious problems in the future.

"Oil and gas is the backbone of the American economy. It has been for many years; it will continue to be for many more years," said Mr. Gerard, who has been at API for just a few weeks. "We could quadruple what we're talking about in the area of alternatives and renewables that were doing today, and what would that give us? About 3 percent of our energy production."

Gerard is right. 3% just isn't very much. Finding massive new oil fields to sustain even current consumption is highly unlikely; the future belongs to renewables. Clearly investment in renewable sources will be needed on a much more massive scale than is even now being discussed. Government needs to play at least as strong role there as it has done throughout the history of the creation and nurture of the oil industry.

The bold and smart move is to take advantage of today's temporarily cheap oil to build the future energy economy as quickly as possible. Incentives are urgently needed, not by Big Oil, which already has all they need, but by renewable energy, which is critical to our future but lacks the broad infrastructure that allows rapid monetizing of its capital investment.

Saturday, February 14, 2009

I wondered if the federal government was planning to cajole both the buyers and sellers of the US auto industry to move to a more fuel-efficient future. It appears that Congress has found money for some R&D carrots even as the US automakers are being shown the stick.

Speaker Nancy Pelosi and Financial Services Chairman Barney Frank sent a letter on Friday to Robert L. Nardelli, Chairman and CEO of Chrysler, and Rick Wagoner Jr., Chairman and CEO of General Motors, regarding their company restructuring plans, due Tuesday. The lawmakers provide a list of 6 items that "must" be a part of their submitted plans; the last is:

A demonstration of your ability to achieve or exceed the fuel efficiency requirements set forth in the Energy Independence and Security Act of 2007, and the emissions standards adopted by California and other states, if they receive Federal approval, and become a long-term global leader in the production of fuel-efficient and advanced technology vehicles.

We trust that your restructuring plan will demonstrate to the world that you are willing to make the tough decisions that modernize your operations, restructure your debt, enhance your competitive status in the global marketplace, and protect American jobs for the future.

Not included were any significant incentives for buying alternative vehicles such as plug-in electric vehicles (e.g. in the form of a tax credit) beyond what current law already provides. The Senate version of the stimulus bill had more generous provisions that were mostly excised in conference committee negotiations. What's left isn't perfect. Some provisions phase out or end, starting this year, reducing the certainty auto makers have long argued they need to undertake the capital investment to develop such vehicles. The best surviving provision changes the total number of PHEVs eligible for a tax credit from a total of 250,000 to a maximum of 200,000 per manufacturer.

Automakers have clamored for a clear policy; the Obama administration has been very clear, and now there are buyer incentives to help build the market. The automakers need to get beyond timid short-term thinking and boldly build the next generation of classic American cars.

These permits do not authorize construction. Rather, they give the developer priority to study a project at the specified site for the duration of the permit.

The preliminary permit is different from the license required to actually build and operate a project. A developer first obtains a preliminary permit to study a site; the permit is generally good for 36 months and requires reports to the FERC twice a year. A permit holder may subsequently apply for a pilot license, good for five years, which allows the construction and testing of a single demonstration unit to further assess project impacts and feasibility. A full license requires extensive studies, coordination with other permitting agencies, and intensive stakeholder engagement throughout the process.

The FERC has expanded on what comments are relevant to a preliminary permit application when ordering their issuance. For example [pdf]:

The majority of the comments filed addressed the construction of the project, including the cable to shore, and potential impacts the project might have on fish and wildlife, aesthetics, and navigation. As noted, a preliminary permit does not authorize a permittee to undertake any construction. Furthermore, the purpose of a preliminary permit is to study the feasibility of the project, including studying potential impacts. The issues raised in the comments are premature at the permit stage, but can properly be addressed in the licensing process.

The FERC also addressed in its Order of Rehearing on the Humboldt and Mendocino preliminary permits [pdf] how it generally does not consider environmental impacts in its decision to issue a preliminary permit:

By its terms, a preliminary permit gives the permit holder no land-disturbing or other property rights, nor does it authorize the placement of any test devices. This being the case, we generally do not consider environmental issues in issuing permits.

The FERC adds that because they result in "no environmental impacts" preliminary permits are only denied for a limited number of reasons:

Because the issuance of a permit can have no environmental impacts, there are few reasons for the Commission to deny a permit application. The Commission will deny a permit where it selects one competing permit application over another. As a matter of policy, the Commission has decided not to issue permits where there is a legal bar to issuing a license for the proposed project. We have also denied permits where we had completed an environmental analysis in a previous proceeding and decided that environmental considerations had made the site in question appropriate for hydropower development, and where a permit applicant was unfit to be a licensee.

Thus comments on potential threats to wildlife, views, quietude and the rest, while raising matters of legitimate concern, do so prematurely, as the preliminary permit is specifically designed to formally evaluate and investigate those concerns. That's what it is for.

Wednesday, February 11, 2009

Short-term thinking dominates the analysis of our auto industry and more generally our future transportation and economic needs. By choosing short-term approaches over long-term solutions we guarantee the need for more short-term solutions.

The Automakers

There were lots of hybrid and electric vehicles at last month's North American International Auto Show (the Detroit Auto Show) and plenty of promises of more to come. The overriding theme was fuel efficiency; however, given Detroit's sometime disconnection from consumer desires, were they showing what consumers want to buy? This is a critical question for the automakers because they have been wrong in the past, producing the wrong kind of vehicle and being caught flat as consumer desires shifted. Following the oil shock years of the early 1970s the industry started building larger, heavier, and higher-powered vehicles culminating with the SUV craze of the last many years. Small, fuel-efficient car development atrophied and Detroit was unprepared for the shift to smaller, thriftier vehicles. Six months ago SUVs were shunned; now with gas at $2 per gallon, SUV sales have perked up while compacts and pricier hybrids have slumped.

When it was $4 a gallon, we couldn't make enough... Now we have trouble pushing the Cobalts out to the dealers.

His difficulty with mercurial buyers was exceeded only by his exasperation with the demands from lawmakers that Detroit further increase fleet fuel efficiency:

It put us in the industry in the position where we are at war with the customer. Because the customer, given the gas prices, is going to want one thing. And we're going to be forced by regulation to produce something entirely different.

“To really ramp up volume, we need a clear energy policy,” said Ford executive board chairman William Clay Ford at a private dinner during the show’s press previews. Without that, he said, “It’s really difficult to plan the volumes for our new models, and to know what product mix to offer.”

How clear must it be?

Three factors drive President Obama's emerging energy policy: reducing foreign oil dependence, creating more domestic energy jobs, and addressing climate change. All three lead to a bias towards high fuel efficiencies in domestic vehicles and the advancement of alternative methods of propulsion, such as biofuels and especially electrically-powered vehicles. While short-term specifics matter at the margins, the broad long-term direction of better fleet fuel economy could hardly be more clear.

The car manufacturers knew this was coming. I don't think you're going to see them get a lot of heartburn over this.

LaHood may nonetheless want to send antacids to some of them, particularly GM, which seems to already being having problems digesting some of this. Regulations requiring the development and production of gas-stingy cars, says GM's Lutz, will be no more effective than combating obesity by forcing clothing manufacturers to make only small sizes. Yes, that probably doesn't work, but, to use Lutz' analogy, what will those who successfully lose weight wear? There is a market for fuel-efficient vehicles today, even with (temporarily) cheaper gas. Won't this market continue to grow and take market share from the gas guzzlers as oil and gasoline inevitably climb back and beyond higher levels?

Frankly, I think it’s a gamble not to do it. It’s clear that society is headed down this road.

They know that this is the future direction of the market, but are too timid to commit: Ford plans to build only about 10,000 electric vehicles per year to start. The fear certainly comes from not knowing how well the cars will sell in the short-term, which has become very hard to predict accurately. The fluctuating demand for the Cobalt is not unusual anymore. The car companies are less confident predicting market trends and market demand for their models than they have been since the Edsel.

In the long-term, however, the direction is clear. This will be the last time we see gas selling at $2 per gallon; the demand for more fuel-efficient vehicles is an upward trend. No company has the clairvoyance to perfectly predict future sales of a new product, but if you have a well-differentiated product that fills (and will fill) a real and compelling need--build it. And be ready with plans to rapidly ramp production when it takes off.

Are US automakers earnest about changing our transportation infrastructure, our transportation economy? Letting others seize the high ground of bold innovation has cost American competitiveness dearly in the automotive industry. What is needed is not larger engines or larger cup holders or cars that turn us on, but instead larger value as a transportation choice.

Happy Motoring

Short term thinking is not just the fault of Detroit; the car buyer also shares a large part of the blame, by making purchase decisions for ephemeral or emotional reasons. With gasoline low again, buyers have again forsaken long-term prudence for the seductive pleasures of massive engines with gas guzzling appetites. Who needs a hybrid now that Happy Motoring days are here again?

In December, sales of Toyota’s Prius—the standard bearer of all hybrids—fell by a whopping 45%. In November, sales were off 48%. During those two months, gasoline prices plummeted below $2 a gallon. This proves that America hasn’t turned truly green. More likely, they turned red at the pump back in July when gasoline prices topped $4 a gallon. People fled their suvs and bought smaller cars and hybrids like there was a fuel shortage.

But once gasoline prices fell back to levels that Americans have normally paid, they pulled back on hybrid purchases. Toyota has indefinitely delayed its plans for a Prius plant in Mississippi. Toyota isn’t the only company feeling a pinch. Ford’s Escape hybrid and the competing Saturn Vue hybrid both saw sales sink by more than 40% last month. And the hybrid Civic? Off almost 70%. Ouch.

In tough times economic pessimism trumps green idealism, at least for most. Demand for pricey cars using advanced technology is strong at the high-end of the market:

Another brave approach to green is being taken by small-volume, luxury automakers Fisker and Tesla. Fisker will start selling its $87,900 plug-in hybrid sports car at the end of this year. Henrik Fisker told Yale Environment 360 that more than 1,000 customers have put down $5,000 deposits, and that the recession—and low gas prices—have so far not dampened demand. Franz von Holzhausen of Tesla said in an interview that the company has delivered 160 of its $109,000 electric roadsters, and is aiming to sell 1,200 cars a year.

Buyers of these cars are perhaps less affected by broader economic concerns, and can afford to pay such sums. At the lower end, buyers are much more price-sensitive. When it comes to making cars that burn less gas, however, asking most consumers to do a careful analysis of the capital cost versus the operating cost of different vehicles is probably expecting too much. Hybrids cost more because they are more complex and because the battery technology is relatively new. R&D costs for battery development have not been recouped through sales and lower costs through manufacturing scale will not be significant until there is a much higher sales rate. Manufacturers hesitate to commit because the demand changes rapidly and unpredictably.

During the summer of 2008, we were oh-so-achingly close to what economists call the Hotelling switch point. Named after the great economist Harold Hotelling, the switch point occurs when rising nonrenewable energy prices meet falling renewable energy prices and energy users switch from dirty nonrenewable energy (i.e., oil, coal) to cleaner renewable energy (i.e., wind, solar). In theory, nonrenewable energy prices are expected to rise over time as the available reserves begin to run out. Renewable energy prices are expected to fall as the technology available to harness energy from the wind and sun improves and reduces the costs of renewable-energy production. Rising incomes might also increase the demand for clean energy relative to dirty energy, further encouraging the switch.

Whitehead notes that we are farther now from the Hotelling switch point and that the price gap between renewable and non-renewable energy has widened. This is a short-term and temporary phenomenon which obscures the longer term reality: whether most consumers know it (or will admit it) the era of cheap Happy Motoring is over, and this is true regardless of whether one's wheels run on fossils or renewables. The issue is not how to find a cheaper ride because all rides will cost more.

Driving on Both Sides of the Street

Must government prop up both the supply and the demand side of the industry?

The reluctant support of the Big Larger-Than-They-Should-Be 3 by the US taxpayer necessitates support also for the auto buyer. One main reason (among many) that Detroit has struggled has been that other auto makers have built products better matched to buyer preferences. Saving Detroit (for now) does little to encourage people to buy their products. So the US taxpayer (via government at various levels) must now also support the buyer, e.g. by offering incentives in the form of rebates and tax credits to buy hybrid or electric vehicles.

However, before as we commit the US taxpayer to open-ended financial support of both the manufacturers and the buyers of the US auto industry the question needs to be asked: what is the industry that we are committing to support? It is a staple of business school instruction to know what business you are in: many railroads failed with the advent of commercial trucking because they believed they were in the railroad business rather than the transportation business. (Today we see some companies realizing they are in the energy business, e.g. Conoco Philips and BP, and some forever grounded in the oil business, e.g. ExxonMobil, who pursues their own unique and, for now, highly profitable short-term strategy.)

Like much of the rest of the world, Americans know that the U.S. automotive industry is in the grips of what may be a fatal decline. Unless it receives emergency financing and undergoes significant reform, it is undoubtedly headed for the graveyard in which many American industries are already buried, including those that made televisions and other consumer electronics, many types of scientific and medical equipment, machine tools, textiles, and much earth-moving equipment -- and that's to name only the most obvious candidates. They all lost their competitiveness to newly emerging economies that were able to outpace them in innovative design, price, quality, service, and fuel economy, among other things.

We can save our transportation sector, including our transportation industry and transportation economy without saving the Big Larger-Than-They-Should-Be 3. To do so, however, requires thinking about our needs as a country for transportation over the next several decades rather than thinking about the needs of the workers over the next several paychecks, of the suppliers over the next several invoices and of the executives over the next several quarters of Wall Street judgement. This is not to say that the needs of these latter groups are not important or should be ignored. Quite the contrary, they will be critical to the success of any recapitalization or restructuring of the automotive industry (although new leadership in the C-suite might be salutary.)

Desperate for Vision: Can our Future Survive our Present?

What's needed is long-term, strategic thinking about what our transportation infrastructure could and should be in 20 years, the role the automotive industry will play, and how we get from here to there. What's not needed is short-term, politically timid bailouts that simply feed the beast, elevating hope over reason in thinking that this squall will pass and we all go back to the way it was.

The decision of what to do is further distorted by fundamental disagreement over what the future looks like. While some cling to the belief that this is just another cyclical disturbance on our way back to the same old normal, others see the mounting evidence that the Age of Oil is ending, and disagree only about how precipitous that end will be.

Tuesday the US Senate (the so-called "World's Greatest Deliberative Body") produced its latest link in a chain of sausages, a stimulus bill with some decidedly unsavory ingredients. Any bill of this size will have elements that are wasteful or feckless; this bill has some which are both, such as auto supports, which additionally represent lazy thinking by lawmakers:

Take the $11.5 billion in tax incentives for automobile purchases. As Ryan Avent argues, "the attempt to support automobile purchases is regressive -- if you're comfortable enough to buy a new car in these economic times, you probably aren't among the most in need of scarce government assistance. It will also fare poorly as stimulus. It's unclear how many sales might be generated by the plan or whether the number will be large enough to increase production or will merely serve to draw down the massive automobile inventory overhang already sitting on lots."

It's also dangerous as a long-term measure: It accelerates the purchase of cars with no requirements for fuel efficiency. Limiting the assistance to extremely efficient automobiles would have at least pushed the industry in the right direction. Using a cash-for-clunkers approach -- where the credit is for those who turn in old, inefficient cars and purchase new, highly efficient vehicles -- would have ensured the credit proved both progressive and environmentally sane. As it is, the $11.5 billion -- more than transit receives in the whole bill -- will go to subsidize the well-off and worsen our carbon problem. It's two counterproductive policies for the price of one!

Today's action to meld the House and Senate versions of the stimulus has apparently watered down some of the automotive inducements and has further reduced the amount of the "infrastructure" spending devoted to public transit. The lion's share of the transportation dollars go once again to highway construction and the Cult of Happy Motoring.

Rather than wait for more mandates and punishments for environmental non-attainment, let’s continue encouraging innovation. I support giving Texans ... a $5,000 incentive towards a purchase of Plug-In Hybrid Electric Vehicles, using the funds Texans have already paid to reduce emissions.

This approach, while not perfect, at least creates incentives to build part of what must be the future of our transportation infrastructure.

Then indecision brings its own delays,And days are lost lamenting over lost days.Are you in earnest? Seize this very minute;What you can do, or dream you can do, begin it;Boldness has genius, power and magic in it.

Congress, and particularly the Republicans in the House really don't get it. Short-term thinking and a short-term sugar rush of stimulus may be useful to jolt the economy into action, but action without purpose is simply frenzy. And when the sugar buzz wears off, the resulting enervation will prompt calls for... more stimulus!

What the country needs instead is a coherent and cogent vision, with the long-term funding, tools, and commitment needed to achieve it. We need a bold plan, not the sad compromise emerging from Congress that sacrifices our future for the political expediency of the present. We need solid nutrition to restore the health and build the vitality of the economic body, not lollipops, sweet and giddy-making in the moment that confirm us as spoiled and indulged children, easily distracted and all too willing to eat political junk food.

Now the FERC has issued its first preliminary permit entirely outside state waters to a subsidiary of Ocean Power Technologies (OPT) in a move clearly in further defiance of the MMS. The FERC order [pdf] permits Oregon Wave Energy Partners II, LLC to study the feasibility of installing 200-400 PowerBuoys producing up to 100MW. The proposed project site is "located in the Pacific Ocean about 3 to 6 miles off the coast of Lincoln County, Oregon."

The MMS filed a protest against the issuance of this permit which the FERC evidently rejected early in its order:

The portion of the proposed project beyond 3 nautical miles from shore would be located on the Outer Continental Shelf (OCS). In its comments, MMS questioned the Commission’s jurisdiction over hydropower projects located on the OCS.

Section 4(f) of the FPA authorizes the Commission to issue preliminary permits for the purpose of enabling prospective applicants for a hydropower license to secure data and perform acts required by FPA section 9 which in turn sets forth the material that must accompany an application for license. The purpose of a preliminary permit is to preserve the right of the permit holder to have first priority in applying for a license for the project that is being studied. Because a permit is issued only to allow the permit holder to investigate the feasibility of a project while the permittee conducts investigations and secures necessary data to determine the feasibility of the proposed project and to prepare a license application, it grants no land-disturbing or other property rights.

Regarding the specific MMS objections to its claim of OCS jurisdiction, the FERC was terse, believing that the MMS had raised no new issues or avenues of argument not previously addressed:

As to the comments from MMS questioning the Commission’s jurisdiction to issue permits for hydropower projects on the OCS, the Commission explained in detail why its jurisdiction extends to projects located on the OCS in Pacific Gas & Electric Company. [125 FERC ¶ 61,045 (2008) [pdf]]

The PG&E decision cited above by the FERC rejected reconsideration of the earlier issuance of preliminary permits March 13, 2008 for two substantially similar projects in California off Humboldt and Mendocino counties. These wave projects were a collaborative effort by PG&E and Finavera and the sites encompassed both state and federal waters, straddling the 3-mile territorial sea boundary. (Both projects are now in question due to decisions by regulators and by Finavera.)

The FERC appears to be leaving the door open to the preliminary permit not necessarily trumping the MMS claim to preside over the issuance of leases. In the PG&E decision the FERC states:

Although the Commission’s authority to issue preliminary permits derives from its licensing authority, Interior’s rehearing request is at least arguably not ripe for review. The PG&E preliminary permits, themselves, do not affect the OCS. As discussed earlier, the issuance of the preliminary permits to PG&E does not authorize the placement of any test devices on the Pacific Ocean, including on the waters above the OCS.

It will be interesting to see whether the FERC uses similar reasoning in considering the issuance of pilot or operating permits (which would generally entail "land-disturbing rights") and whether their issuance will be conditioned on any approval by the MMS.

As they have now done in several applications before the FERC, the MMS responded to the Grays Harbor Ocean Energy Company applications with a protest. The protest appears to rehash many of the arguments made earlier and reiterates as strongly as a lawyer's treatise can do, that the MMS really really disagrees with the FERC on the latter's interpretation of key parts of the Federal Power Act and the Energy Policy Act of 2005. Trying to follow all the back-and-forth makes my head hurt, in part because it's starting to sound like a shouting match over what Congress meant when it left something out, and why it used broad rather than specific language, and whether something should be interpreted inclusively or more narrowly, and the precise definition of terms defined variously not in the laws at issue but in other laws to which they (more or less) allude.

There's plenty of scope for interpretation and litigation, and there seems little likelihood of the FERC and the MMS coming to agreement on their own.

Irrespective of the legal merits of the FERC and MMS positions a few things appear unarguably true:

FERC has a permitting process and is using it to issue permits; MMS on the other hand has been promising to issues rules allowing applicants to start the permitting process on the OCS, and yet, 5 months after the close of public comment on the proposed rules, has yet to either issue any or give any guidance on which one might rely as to when they will do so.

The standard MMS leasing approach puts everything to competitive auction, which fits the needs of marine energy project developers very poorly. Having undergone the time and expense of identifying a promising site and technological approach, others can swoop in and outbid for the site, leaving those who have pioneered the opportunity no compensation and no recourse.

MMS leases are ill-suited also because lease payments start immediately rather than at commissioning, when a project starts producing power, hence revenue, to pay the rent. Where years of studies, analysis, stakeholder engagement (and quite likely lawsuits) await, such a fee structure is punitive, especially to a nascent industry, and will have the effect of arming opponents with a financial cudgel wielded by the tactics of delay.

The ongoing spat between these two federal agencies serves no purpose beyond titillating the insatiable urge of the bureaucrat to aggregate authority. Meanwhile, the regulatory uncertainty creates confusion and further freezes any funding to advance renewable marine energy projects, in contradiction to President Obama's vision, policy and reasonable common sense.

It's worth also asking the question: exactly what minerals are the Minerals Management Service managing when it comes to marine renewable energy? The original purpose of MMS was to ensure that the public, through the government, received royalties for the extraction of mineral wealth from public lands, i.e. to compensate the public for the depletion of a finite and non-renewable resource for private gain. There's no meaningful way in which wind or waves are depleted. Charging rent for the exclusive use of some bit of ocean may make sense, but there's no compelling reason to task the MMS as landlord merely because they know how to cash the rent checks.

There needs to be one lead agency for marine renewable energy and it makes the most sense to have that be the agency that regulates and understands energy, not one that is concerned with mining and drilling. The FERC should be the lead agency on the OCS and the MMS should mind/mine their other business.

Since much of the current argument between the agencies is over differing interpretations of the statutes and the Congressional intent the best solution would be to replace those statutes with an updated Energy Policy Act. Our new energy economy and Obama's policies demand that such an Act be crafted anyway. In what may be an extended meantime, however, the Administration should take charge, at least by getting Secretaries Stephen Chu at Energy and Ken Salazar at Interior to talk to each other and make their staffs play nice. Both men clearly grasp the need for renewable energy and Salazar's comments today struck the right tone when he rejected the flawed Bush midnight regulations emphasizing a "headlong rush" to "drill, drill, drill" on the OCS in favor of a policy that would incorporate

...the great potential for wind, wave, and ocean current energy [in] our offshore energy strategy... [The Bush approach] was a process rigged to force hurried decisions based on bad information. It was a process tilted toward the usual energy players while renewable energy companies and the interests of American consumers and taxpayers were overlooked.

Resolving the turf battle between the FERC and the MMS is also a national interest which cannot be overlooked a moment longer.

Monday, February 9, 2009

For a while many of us thought (hoped) that renewable energy would remain a bright spot of investment and innovation, even as other sectors of the economy stagnated, shriveled or sickened. However, the broader economic disease is spreading and renewable energy companies have caught the contagion.

Finavera has seemingly exited the wave energy business, a direct result of the lack of partners and especially funding for the AquaBuOY technology it acquired from Seattle-area AquaEnergy years ago.

Now Bluewater Wind is on the ropes following news that its parent company, Australian conglomerate Babcock and Brown is being forced into liquidation. After a lengthy and tempestuous courtship, Bluewatwer inked the first power purchase agreement (PPA) for offshore wind just this past summer with Delmarva, at a price of less than $0.11/kWh. While there is no word (yet) about the future of Bluewater, the Delmarva deal, or the PPA for the project, their collective future appears dim, another domino in the continuing unwinding. How the project could have ever been feasible at that astonishingly low rate will now likely never be known.

The pool of so-called "tax equity investors" has dwindled to around a half-dozen, from more than 20 in 2007. Key players such as Merrill Lynch and Lehman Brothers no longer exist. Others, including the likes of John Deere (DE) and Prudential (PRU), have backed out of the market, if only temporarily, according to research by Hudson Clean Energy, a private equity firm specializing in green energy. "This will be a constraining factor because the population of sophisticated buyers for these credits is too small," says Oerlikon's O'Brien.

The shortage of buyers couldn't have come at a worse time. To hit Obama's goals for new renewable energy, the industry will have to mobilize far more capital than it has had to before. This year, the tax equity market is expected to hit $11.1 billion and would have to rise to around $43 billion in 2012 to build all the capacity being called for. Yet in 2007, when the market had more than 20 buyers, investors bought up $5.4 billion in tax equity. Last year, just eight investors handled about $5.5 billion in 2008. "Between now and 2012, [tax equity] markets would have to grow four- or fivefold," says Arno Harris, CEO of Recurrent Energy, a renewables developer in San Francisco.

In the 1970s microchips helped jump-start the economy. In the 1980s personal computers unleashed a wave of consumer and business spending. And in the 1990s the Internet gained steam just when the economy was at its bleakest, creating new companies, jobs, and investment opportunities. Even in 2001, when hundreds of dot-com companies went bust in the space of a year, a couple of guys were already working on a startup that would make money on web searches. (That would be Google.)

Technology won't save us this time, at least not all by itself, because of the tumorous growth of dysfunction in the core structures of the economy. Renewable energy could be the engine to lead the recovery, but first there must be capital investment. Attempts to "unfreeze" the credit markets have been a dismal failure, and further (but wiser) efforts in that direction, while worthy, will be insufficient. Tax cuts, refundable credits and such ilk are not the answer. A direct injection of capital to the renewable energy sector is essential for the inextricably linked needs of our future energy and economic health.

The decision allows the Company to focus its resources on enhancing its near-term wind project portfolio and provide shareholders with a clearer path to revenue in this challenging economic environment.

Due to the current economic climate and the restrictions on capital necessary to continue development of this early-stage experimental Project, the Project has become uneconomic. Efforts by Finavera to transfer the license were not successful. Therefore, Finavera respectfully requests that the Commission allow it to surrender its license for the Project.

The investment prospects for Finavera have undulated plenty over the years. In November Finavera announced a private placement of equity primarily for its wind business and shortly after struck a deal with GE to arrange financing for some of its BC wind projects. The extension of its previously issued and now underwater warrants strongly suggested investor impatience with the pace and direction of the company's progress.

In its press release Finavera concludes by clarifying its plans as a company:

The immediate primary focus remains the continued development of the Company’s wind projects in BC and Ireland through partnerships and/or joint venture arrangements. In the medium term, the Company plans to execute on its project finance agreements and bring the wind energy assets to commercial operation. In the longer term, the Company will continue to assemble a diversified mix of revenue producing, renewable energy assets.

Only "in the longer term" would the company pursue anything other than wind. If there are no internal prospects and no external partners for the AquaBuOY technology, then development will likely cease, clearing the way for competitors such as the Pelamis, already in commercial operation, to prevail.

The ungreen jobs are doomed to disappear because they are unsustainable and are destroying a livable climate for our children and the next 50 generations. So the issue isn’t whether green jobs will be the biggest single source of new jobs in the coming decades. That is a done deal. The issue is whether the green jobs will be created in this country or in places like Europe and Japan and China where economists and economics reporters don’t waste a lot of time trying to convince the public they are a bad investment.

This is a key point to remember as our politicians wrangle over yet another stimulus package. Decrying a stimulus proposal solely because it creates too few immediate jobs, or their supposedly excessive cost, or the slowness of their pace of creation misses the larger point. Our economy doesn't just need a quick boost, although it needs that too. What's needed is sustained and purposeful investment to erect a new energy foundation for our 21st Century economy.

Thursday, February 5, 2009

Massive loans are necessary to finance renewable energy projects, particularly for wind, and such loans are in very short supply. The resultant slowing presages a serious loss of industry momentum, from which restarting may be costly, lengthy, and difficult. Immediate action is urgently needed to prevent a serious stall.

“I thought if there was any industry that was bulletproof, it was that industry,” said Rich Mattern, the mayor of West Fargo, N.D., where DMI Industries of Fargo operates a plant that makes towers for wind turbines. Though the flat Dakotas are among the best places in the world for wind farms, DMI recently announced a cut of about 20 percent of its work force because of falling sales.

"Six months ago everyone (in the investment community) said we were not doing enough to meet demand growing at an expected 40% this year. "Now people are saying 'Why have you put in place plans for a 40% increase in capacity when growth levels are only going to be 25%?'," he explained.

After the election of Barack Obama, there was a great rush to ramp up in the United States, due to expectations of a wind boom based on the rhetoric of the campaign. The bankers, however, despite an historically broad spread between their borrowing and lending rates, are simply not lending.

The change in economic climate has spurred layoffs at Clipper Wind, the second-largest US turbine manufacturer.

A major layoff today at Clipper Windpower's Cedar Rapids turbine works sent dozens of stunned workers home. Employees leaving the plant said they were told that their terminations were due to slowing market conditions, including difficulty by wind developers to access tax equity and project debt financing. The layoff affected about 90 of the company's 830 employees worldwide, according to Mary Gates, Clipper director of global communications. Gates said "a good number of the layoffs" took place at Clipper's production facility, which employs nearly 390. Gates said some wind developers have asked to defer delivery of wind turbines into 2010 and 2011.

Lost in that uproar is the real grotesquerie: banks have used huge sums of that money to acquire other banks. Too big to fail just got bigger. Wasn't this kind of financial legerdemain part of the problem that got us to this ugly pass? Using astronomicaleconomical sums of cash to execute mergers and acquisitions produces no new goods and services and no stimulus to the enervated economy. Instead, it leads to layoffs, the opposite effect of what's needed, and paid for in part by taxes from those losing their jobs.

While not apparently illegal, thanks to the unfathomable negligence and panicked gullibility of the Bush Congress, it is ethically horrifying and economically indefensible. For the sake of the economy's health, for a modicum of justice for the shafted workers, and for our green energy future, put those billions to a productive use, and finance the continued growth of the wind industry.

Wednesday, February 4, 2009

President Obama, seeking a "post-partisan" consensus on a massive stimulus package, has played well his role in the plot-setting first act of the latest in Kabuki theater, Washington-style. Wanting a stimulus for an increasingly sick economy, a few first steps on climate change, and a down payment on a new energy policy, he now struggles to entice 80 yea votes in the Senate by offering tax cuts in an effort to placate Republicans. He shouldn't bother--it's bad policy and bad politics both. Kabuki's second act is typically a battle, and true to style, the US House showed no bipartisanship whatsoever. Sen. Charles Schumer is right about courting GOP votes:

The more the better, but I will say this. I'd rather have a really good bill that helps our economy get out of this mess, with 65 votes, than dilute the bill and get 80 votes.

Republicans never saw a tax cut they didn't like, but realty-based lawmaking demands a different approach. Bob Borosage of the Campaign for America's Future cuts to the chase:

Tax cuts come in a distant second to public investment in actually creating jobs.

The effect of tax cuts is anemic compared to other forms of stimulus, particularly government spending. According to Mark Zandi, Chief Economist at Moody's Economy.com, Inc., who directs Economy.com’s research and consulting activities, "the goal of a fiscal stimulus plan is to maximize the near-term boost to economic growth without weakening the economy’s longer-term prospects." Although his analysis [pdf] is from last year and focuses on a then-large $150B proposed plan, the core points remain valid:

Tax incentives to stimulate business investment ... [are] not a particularly effective way to boost near-term economic activity, but it will make any plan more politically palatable and thus smooth its quick passage.

The economic bang-for-the-buck of bonus depreciation is very modest. Indeed, of all the tax and spending policies considered, it provides the least amount of stimulus.

Making the current dividend income and capital gains tax rates permanent would also make for poor economic stimulus.

Making [the Bush tax cuts] permanent would provide very little economic stimulus at this point. Some households would spend more freely given the certainty of their lower future tax rates, but most do not have the financial resources to do so.

This is the folly at the heart of the ceaseless blather about tax cuts as the solution to all our ills. Such an artifice doesn't actually put money in the pockets of very many people who would actually spend it on goods and services, the critical outcome for any policy to be stimulative. Of all the approaches analyzed, the least efficacious by far are permanent tax cuts, of any kind--personal, corporate, dividends, or capital gains. Along with accelerated depreciation (another form of business tax reduction) each of these stimuli is less than half as effective as anything else, as measured by the number of dollars in GDP growth per dollar of stimulus (whether tax cut or spending.) Put another way, anything but these tax cuts would be more than twice as effective; some, such as infrastructure spending is more than three times more effective.

Hale "Bonddad" Stewart explains why we need a stimulus, and in turn explains what "stimulus" means. It's been successfully framed by the right as a tax cut and nothing else, but that's completely bogus, so it's important to break down what's happened to the economy and why extraordinary measures must be taken...

The equation for GDP (Gross Domestic Product) is Consumer spending (C) + Investment (I) + Net Exports (E) + Government Spending (G) = GDP. We've already covered personal consumption. It's dropping hard and fast... As for total private domestic investment, consider the following percentage changes from the preceding quarter starting in the 4th quarter of 2007: (-)11.9%, (-)5.8%, (-)11.5%, 0.4%, (-)12.3%. Because the US is a net importer the exports part of the equation is moot. That means the only thing holding up the US economy is government spending. And considering the mammoth drops in investment and consumer spending in the latest report (-12.3% and -3.5%, respectively) neither of these numbers appears ready to turnaround anytime soon.

There are some Republicans who are arguing that tax cuts are the answer. But there are several problems with that. The first is tax cuts were advertised as an engine of job creation in 2003 and we got one of the lowest rates of job creation on record [...] In addition, recent history demonstrates that tax cuts will go to savings and paying down debt rather than consumption. In addition, there is little reason for business to invest in production right now. That leaves pure spending [...] There's an old maxim in business: you've got to spend money to make money. That's where we are now as a country. We've exhausted the possibilities of the buy everything you can on the planet school of economic thought. We're in debt up to our eyeballs -- we are in fact choking on all of the debt we have wrapped up in consumption. We need to change models. That means we need to invest in new technologies and improve our basic infrastructure to attract and support this new business. It's really thatsimple.

Let me add one other tangible way to prove that government spending is all that's left: the buildup of unused goods in warehouses and stock rooms.

Consumers didn't consume, businesses didn't invest, overseas buyers of American goods didn't buy and unsold products piled up in warehouses in the final months of last year. Those factors combined to drive the economy to its weakest quarter in nearly three decades and signaled that the worst is still to come.

New government data showing that the economy contracted at a 3.8 percent annual rate in the fourth quarter was not as grim as economists had forecast. But the data on gross domestic product, released yesterday by the Commerce Department, were a portrait of an economy in a deep and broadening recession. Business inventories swelled as consumer appetites waned, suggesting that companies will cut their excess stockpiles and curtail new orders this year, pulling down growth in the months ahead.

There's no consumption, no investment, and no trade. Lump-sum payments to consumers will pay down debt and do nothing for the economy. Government spending is the only answer. This is not being done to fulfill a Democratic wish list, it's being done because we have no choice.

Even as utterly discredited arguments are continuously recycled in favor of feckless tax cuts, specious ones are employed to discredit other approaches. The arguments pick at minuscule bits of the proposed overall stimulus package. Epitomizing these deeply unserious objections are the Republican's list of the 32 most wasteful provisions. Two of these 32 are emblematic of a failure by the GOP (Generally Obstructing Party) not only to appreciate basic economics of stimulus, but also the resistance to realistically respond to the crying need to restructure our energy economy:

Look at what the GOP considers to be pork in this bill:

The biggest line item is $6 billion for greening federal buildings. This is stimulus at its best. Thousands of labor-intensive American jobs. Hundreds of millions in new orders to American manufacturers for windows and weather stripping and caulk and insulation. And it has the added bonus of saving taxpayers millions down the line: You reap long term savings in energy costs and have the added bonus of reduced greenhouse emissions.

If this is the best the GOP can offer to justify its obstructionism, then the objective is clearly not about saving money. It’s about forcing a popular president to expend political capital.

The third act of Kabuki usually culminates "in a great moment of drama or tragedy" and is often followed by another battle in the fourth act before a "quick and satisfying conclusion" is reached in the concluding fifth act. Most observers expect some kind of stimulus bill to pass and be signed by the President, with or without Republican support. This will likely entail both great drama and some measure of tragedy, depending entirely, to the detriment of the country, on purely political considerations.

Certainly, this stimulus act will not be the last any more than the greatest theft of US taxpayer money, the TARP, was. There will be a fourth act, another, even larger package under even more desperate circumstances, and closer to the next election for which the players are already positioning themselves. President Obama understands that it will take more than one (or maybe even two) presidential terms to achieve the critical goals of restructuring our energy economy and repairing the environmental damage and neglect long unaddressed.

GOP Senate Minority Leader Mitch McConnell echoes Mark Zandi in part when he says of the stimulus that it be "timely, temporary, and targeted."

The targeted part is clear to all but the GOP: forget tax cuts and focus on spending, particularly where it creates something of enduring value to the country and its people: infrastructure such as a better electrical grid, expanded rail and public transit, and a modern communications infrastructure of broadband and wireless, where we, shockingly, trail many of our economic peers and competitors.

The timely part is tough; the stimulus was needed yesterday and there are (we are told) not enough "shovel-ready" projects on which to spend that create jobs quickly. There are ways, I believe, to create immediate job and economic impacts, but lawmakers are not looking in the right places, for reasons that are both interesting and profoundly troubling. (More on that in a future post.)

The temporary bit is simply wrong. If this were just another seen-it-before typical recession then, sure, any stimulus needs to be brief so as not to ignite inflation as the economy expands. But this is anything but a typical recession for a host of reasons as is becoming clearer every day. With the potential for a years-long period as housing, consumer credit and commercial real estate deflate, with the imminence of peak resource effects (oil, uranium, phosphorus, water, fish, others...) and with the urgent need to rebuild and rethink our entire approach to energy and consumption, this is different. It may not be another Great Depression (whatever that means) but it is different, very different, from what has come before. Writes James Galbraith in his article, "Stimulus Is for Suckers: We Need a Recovery Plan that Will Last for Years":

The historical role of a stimulus is to kick things off, to grease the wheels of credit, to get things "moving again." But the effect ends when the stimulus does, when the sugar shock wears off. Compulsive budget balancers who prescribe a 'targeted and temporary' policy, followed by long-term cuts to entitlements, don't understand the patient. This is a chronic illness. Swift action is definitely needed. But we also need recovery policies that will continue for years.

Hydrovolts' new hydropower technology taps a plentiful but overlooked global source of renewable energy from water currents in canals and channels. Hydrovolts turbines offer an economical and easy way to generate reliable, local clean power in millions of locations around the world. There's nothing else like it.

Hydrovolts' floating Flipwing turbine is simple to deploy and connect. Just drop it in the water and tether or anchor. No dams, weirs or site preparation are needed, reducing costs and minimizing environmental impacts.